tv Nightly Business Report PBS February 18, 2011 7:00pm-7:30pm PST
federal spending. topping the target list: president obama's health care reform. businesses are watching the battle carefully to see if their contracts will be eliminated. investors are looking for signs uncle sam's red ink will finally come under control. darren gersh has more on the spending drama. >> reporter: as you would expect, democrats and republicans mixed it up pretty good today. one of the hottest fights: whether to prohibit the obama administration from spending money to implement health care reform. new jersey's scott garrett called it a question of freedom. >> this is the first time in the history that the price of being an american is that you have to buy a particular product that some unknown un-faceless bureaucrat in washington ordains you have to buy. >> reporter: minority leader nancy pelosi fired back republicans are protecting insurance companies. >> it is again this congress saying to the american people we're here for special interests, we're not here for
people's interests. >> reporter: republicans even took some swings at each other. tea party activists like joe walsh pushing an amendment to cut non-security spending by 5.5% across the board. >> we are broke, we are $14 trillion in debt, and we know it's more than that. >> reporter: hal rogers, the republican chairman of the appropriations committee, says an across the board cut goes too far. >> we were elected to make choices, not run on automatic pilot. >> reporter: the house voted against making the deeper across the board cuts. of course, with democrats controlling the senate and the white house, any republican cuts will be pared back. i.s.i. group's andy laperriere expects a final compromise cutting around $30 billion from spending this year. >> we're going to cut spending modestly at the federal level. combined with what the state and local governments are doing that's going to be a little bit of fiscal restraint for the economy. >> reporter: congress has only funded the government through march 4. to keep the doors open, republicans and democrats will
need to reach agreement on spending for the rest of the year. in the '90s, a budget standoff between republicans and president bill clinton forced a government shut down. but laperriere does not expect to see a sign like this again. >> a shut down, i think, is pretty unlikely. a bunch of short-term extensions and a lot of drama is pretty likely. >> reporter: some of that drama came today with democrats warning a government shut down could delay social security payments. republicans called charges like that "irresponsible scare tactics." darren gersh, "nightly business report," washington. >> susie: budget battles reached a fevered pitch in wisconsin today. thousands of protestors converged on the state capital in madison. they're demonstrating against a proposal by republican governor scott walker to cut state worker benefits and curb union rights. some democratic lawmakers fled the state and are in hiding to delay passage of the bill. wisconsin is not alone 44 states and the district of columbia will start next fiscal year with
a combined shortfall of $125 billion. joining us now to talk about this-- bob kurtter. hes' managing director of the public finance group at moody's the agency that rates the financial health of states. hi, bob. >> hi, good evening. >> susie: all right, so, we have all these states with these financial problems. there's a lot of focus about the labor unions and the benefit packages that they have. is it because of that, or is it because of other economic issues? how do you see it? >> yeah, states are facing unprecedented financial challenges. the recession is, you know, over as declared by the economists, but the recovery has been weak. state and local governments have been lagging coming out of the recovery, and with the roll-off of the federal fiscal stimulus, they're facing one of their toughest challenges in decades. >> susie: all right, now, of the 47 states that you are rating,
moody's says that three are most vulnerable. we've got arizona with a negative outlook, california with a stable outlook, illinois with a negative outlook. what are the metrics that you use to determine the financial health of a state? >> when we looked at states, we look at the overall picture of the financial health and assess their overall financial condition, including looking first, of course, we look at four factors. we look at their finances. obviously, that's the most important question of whether or not they're balancing their budget, whether or not their revenues are keeping up with their spending. obviously, we look at their debt as well. that's what we rate, the amount of debt and types of debt that they have. of course the economy also important. a state like california has much different characteristics than a smaller state like, for example, rhode island. and lastly we look at their management. do they have a history of balancing their budget? do they have the financial
flexibility to make the difficult decisions is there do they have a lot of rules and initiatives or ballot amendments that can tie their financial practices up in knotts? >> susie: so if a state cuts some of its pension obligations or raises its taxes do you look more favorably on that state, and do you raise its rating? >> we are really indifferent as to which side of the equation governments balance their budget on. we are concerned about overall budget balance and whether they do it by raising taxes or cutting spending is really the choice of elected officials. we're looking at long-term structural balance, and whether or not they put programs and practices in place that will lead to sound financial practices and allow investor to be comfortable that debt det service will be paid in full and on time sgliz sgloouz we have been hearing from economists warning investors they could see defaults on municipal bonds. we haven't seen the municipal
bonds issued by states, it's very rare for them to have a default. do you see that changing? >> yes, it's extremely rare for states to default. there hasn't been a state that defaulted since the great depression and even at the height of the great depression there was only one state that defaulted. we don't expect any state to default but they have very serious financial problems putting great stress on their budgets, on their policymakers and making investors very jittery. >> susie: absolutely. thank you so much for coming on our program. we really appreciate it. >> thank you very much. good evening. >> susie: we've been speaking with bob kurtter of moody's. >> susie: here are the stories in tonight's n.b.r. newswheel: stocks closed the week to the upside: the dow rose 73 points, the nasdaq and the s&p both up two. trading volume rose on the nyse, topping a billion shares. nasdaq volume also higher at 2.1 billion shares. china moved to reign in inflation today. it raised reserve requirements for lenders, the second time
it's done that this year. the idea is that if china's banks hold more money on their books. they can't lend as much cooling growth. the panel probing wall street's flash crash has a solution to avoid another market free-fall. it wants to charge fees on cancellation orders. that would discourage high frequency trading firms from using the tool, which helps figure out stock pricing. the flash crash last may triggered a sudden drop of over 700 points on the dow. and intel will soon be hiring in arizona: it's building a $5 billion micro-chip plant there. construction starts later this year and should open for business by 2013. still ahead, market monitor joe battipaglia gives the names of four global growth stocks to boost your portfolio. speaking of stocks and growth, the s&p 500 is now trading at a
level that's double its financial crisis low. it's not alone. the dow and nasdaq are both at better than two-year highs. but can the upswing continue? suzanne pratt talked with some wall street pro's to get answers about where stocks are headed from here. >> reporter: t-shirts in february in new york city? that's as believable as a doubling of the s&p 500 in just two years. both however are true. you might be one of those who credits unseasonable temperatures on global warming. as for the run-up in stocks, strategist gary thayer credits the economy. >> the wounds of the recession are starting to heal. and, i think investors are feeling more optimistic about the prospects for the economy going forward. >> reporter: the question now is whether that optimism is getting overdone? after all in recent weeks investors have been snapping up stocks in nearly all shapes and sizes. since january, the s&p 500 is up more than 6%.
so, too, is the russell 2000-- a closely watched measure of small stocks. but just because the market has gained a lot of ground in a short time, doesn't mean the rally will soon end. experts say don't forget corporate profits are solid. >> we would be concerned about the market if the prices were moving ahead of earnings, but that's not what's happening. we are seeing good earnings growth and the market prices are going up in anticipation that that will continue and we think it will. >> reporter: most earnings forecasters do as well. s&p 500 profits are expected to increase about 14% this year. that compares to an annual average of 11%. still, the stock market is not without it's fair share of nervous nellies. market pros say investors need to watch global inflation pressures and the end of the federal reserve's easy money policy. strategist mike ryan also says be on guard for a deepening of middle east tensions. >> if we see the current unrest
that had started in tunisia and cairo and now seems to be manifesting itself in place like bahrain and libya. if that becomes even broader in the region and destabilizes some of the u.s. key allies and threatens supply of energy that would be a bigger concern for the market as well. >> reporter: many market pros say a near-term market correction wouldn't shock them. but, most also believe the path of least resistance for stocks is higher. if that were only true for february temperatures here in manhattan? suzanne pratt, "nightly business report," new york. =
>> susie: the stock buying momentum continued today on wall street. and it was another winning week for the major averages. let's take a look in tonight's market focus. as we wrap up this friday, the blue chips marked their third straight weekly rise. it's also their eleventh weekly increase in the past three months. the dow moved higher in three out of this week's five sessions. overall, it gained 118 points or 1%. the nasdaq composite also rose a percent this week rising in four out of five sessions adding 24.5 points. same story for the s&p 500. it fell only once this week for a 1% gain. with the markets at fresh highs,
let's look at how far some dow components have come since their lows back in march 2009. caterpillar surged 340%. it's benefiting from strong global demand for its earth moving equipment. american express, tacking on 328% as the financials recover. but wal-mart pales by comparison, up just 16% in the past two years. wal-mart posts fourth quarter results on tuesday: the numbers cover the all important holiday selling season. analysts expect disappointing holiday sales and say the giant retailer is losing market share to dollar stores, grocery chains and rivals like target. as for the stock, wal-mart's down more than 3% since the beginning of the year. it closed tonight at $55.38. speaking of groceries, campbell soup shareholders not feeling mmm-mmm good after its latest quarterly results.
second quarter earnings matched analysts estimates at 71 cents a share, but sales were off 4%. the company's popular soups are facing tough competition from rival general mills, the maker of progresso soup. between the competition and higher raw materials costs, campbell cut its full year outlook. the stock fell 4.5% to a one year low. a sharp pull back in grain prices today, on worries about the outlook in china-- one of the world's largest grain importers. as we reported, china took steps today to slow down its economy. that could mean less demand for grains and that wilted fertilizer stocks. c.f. industries led the slide: falling nearly 7%. while mosaic, agrium and potash each fell 3% or more. and finally, brocade communications topped the nasdaq actives. the stock traded on ten times its normal volume.
several analysts turned positive in reaction to an encouraging outlook from the network equipment maker. brocade stock moved up 6% to a nine-month high. and that's tonight's "market focus." >> susie: our market monitor tonight has a long list of concerns about the economy, but he's still fully invested in the stock market. joining us now-- joe battipaglia, market strategist for the private client group at stifel nicolaus.
joe, so nice to see you. thanks for joining us 3. >> pleasure is mine. >> susie: all right, so you heard all of our reporting. the stock market is rallying. there's a lot of momentum. and you're very concerned about the economy. so give us your analysis. >> well, simply state, we are in the second year of the expansion. yet the growth rate is not where it typically is at this point in recovery. the unemployment rate is still high. we're not creating new jobs. we're not seeing growth in income. and the housing market is still rather depressed and probably will stay that way. meanwhile, despite extraordinary stimulus from the federal government and the extraordinary measures by the federal reserve, the best we can hope for is sort of a 3% print on g.d.p. cons keptly, companies have done a great job from getting profitability from around the world but, unfortunately, they've turned their backs, so to speak, on the united states so we tend to become more sluggish. and i'm not sure this is sustainable on a longer term basis. >> susie: still, even though you feel that way about the economy,
your client portfolios are 93% invested in stocks. so is there a disconnect here? >> not really pause we're running at essentially a 10% g.d.p. deficit. so that's stimulus. the federal reserve, despite the inflation pressure and arguments to the contrary, continue to buy treasuries and flood the banking system with more capital. the private sector has done a fabulous job of trying to get itself out of the deep hole that it's in. while all these forces play out, the stock market naturally has risen, continues to rise, and those corporate profits come through. what we're looking at now are transnational companies that can get growth where they can find it. >> susie: let's look at your list of companies that fit that bill. at the top of your recommended stock picks is i.b.m.. it's been up 15% so far this year. it closed today at 164. why do you like it? well, again, it's positioned around the world where there's corporate spending.
they have the platforms that, obviously, the corporate world is looking for. they had a pristine balance sheet. and to me it presents great value in what is a world of transnational corporation leadership. >> susie: and how about apple? that's the next one on your list. that fits into the same scene you're talking about. tell us the story. >> they've got great propellants. they've got 10%-plus growth rate in their revenue from the new products and the adaptation of all these products, and a very high operating margin to go along with it. that gives that stokt ability to rise further. and it's a global brand. again, playing on that central theme. >> susie: exxonmobil is your next pick. it's been on a steady climb for a while now. is that growth mostly because of higher oil prices or something else? >> well, clearly the stock price of the oil companies is tied to energy prices. and the rising energy prices favored them. it is a negative, of course, on the global growth story because it drives up energy costs for
users of energy, for consumers. we need to watch that. and we may reach a tipping point in the next number of months if these prices move higher because of issues out of the middle east. but exxonmobil of course has done a great job of leveraging off their integrated system to get value to the shareholders. >> susie: let's look at your fourth and final pick, joe. it's pepsico, pep on the big board. you look at the stock performance over the past year, pretty choppy, and today it was down 2%. what's the attraction there? >> well, on the one hand you want to say it's sort of a defensive consumer product, slow and steady. but on the other hand, let's look at what they've done. they've consolidated their bottling to get leverage in their system. they're moving into all the emerging markets at a rate in which the consumption is rising, and as afluns develops around the world, amount of consumption of these berchlgs will rise with it. they get a one-two punch which could make it a very important growth strl over the next 3-5 years. >> susie: any digs closures, joe? do you or your firm own any--
>> oh, yes. we own all these snokz our managed account portfolios. >> susie: thank you so much for coming on the program. >> our market monitor joe battipaglia from stifel nicolaus. >> susie: here's what we're watching for next week. quarterly earnings from several big retailers. wal-mart, macy's and home depot kick things off tuesday. also, oil prices. as u.s. crude heads higher, its european and asian counterpart is starting to drop. dan dicker from the street dot com joins us to discuss what it means for your portfolio. more than 200 furloughed flight attendants will soon return to work at american airlines. that's in addition to the 365 re-hired last week. most of them used to work for t.w.a., which merged with american ten years ago. american's move is an example of what's happening industry-wide. the overall airline workforce is
increasing as business travelers and consumers return to flying. a u.s. judge has delayed a decision on whether to enforce a $9 billion judgement against chevron. this week, chevron was ordered to pay it to clean up oil pollution in ecuador. chevron wants the judge to declare the verdict un- enforceable. an international arbitration panel has granted a temporary injunction to do so. since the oil giant has no assets in ecuador, a u.s.
if you haven't started work on your federal tax return, there's still time. the filing deadline is april 18th. all this week kevin mccormally has been with us offering tips to get you started. he's editorial director at "kiplinger's" personal finance. tonight he wraps up our week of tax tips, with perhaps the most important one of all-- how to get your tax refund, quickly! >> are you expecting a tax refund this year? if so, you need to decide how to get your money. the old fashioned way, of course, is to have uncle sam write you a check and send it in the mail. that could take a few weeks. faster, safer and cheaper for the government is to have your money shipped electronically to your bank account. if you want it all to go to a single account, you request direct deposit by simply
entering your account information on your tax return. you can split the money among as many as three accounts, maybe a checking account, an i.r.a. and a brokerage account, for example, by including an extra form with your return: the 8888. or, you could ask the i.r.s. to buy series i u.s. savings bonds for you. the current composite yield is only about three-quarters of a percent, but that's better than most money market funds. the bonds come in $50 increments and any odd amount of your refund can be electronically deposited to your savings account. finally, in a test this year, uncle sam is offering 600,000 taxpayers the chance to have refunds loaded on to a debit card that can be used to withdraw funds at atm or pay for purchases. this option is aimed at folks who don't have bank accounts and may have to pay high fees to cash their refund checks. one more thing about refunds: too many of us are addicted to them. last year, nearly 110 million taxpayers got an average of $3,000 each. if you're in this group, please
file a new w-4 form with your employer to reduce tax withholding form your paychecks. it really is better to get your money when you earn it, rather than having to wait for a springtime refund no matter how you choose to get your money. i'm kevin mccormally >> susie: kevin will be back in april, joining us the week of the 11th with some last minute tax tips. until then, if you've got a tax question for kevin, log onto our website: nbr on pbs.org. and finally with the markets closed for the presidents' day holiday on monday. we'll bring you a special edition of nbr: "innovators in business". we profile a legend in commercial real estate: milton cooper. while you may not know him, his company is the biggest owner of strip shopping centers in the world. he pioneered the real estate investment trust or reit, which lets even small investors buy into rental property projects. we hope you'll join us for an in-depth look at this business innovator, milton cooper.
>> susie: that's "nightly business report" for friday, february 18. i'm susie gharib. goodnight, everyone and have a great weekend. we hope to see all of you again next week. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org
captioning by vitac, underwritten by fireman's fund president obama dines and chats with silicon valley execs the same week a report shows a slight improvement in the valley's job outlook. a 45-year-old tax break for farmers to keep them from turning their land into housing is threatened by governor brown's budget.
the world champion san francisco giants try for a two-for as spring training begins. and we look at an exhibit featuring african-american quilts and jazz music. all that coming up next. ♪ ♪ good evening. i'm spencer michels sitting in for belva davis. welcome to "this week in northern california." joining me tonight on our news manual are rachel gordon, city hall reporter with the "san francisco chronicle" and a baseball fan.